IBM reiterated a forecast, however, for at least $16.70 per share in profit this year.

Today, the Street is focusing not just on software sales, which were hit by the deal slippage, but also weaker-than-expected results in IBM’s hardware business. As I mentioned this morning, the poor results have led to speculation IBM may sell its business of server computers that use Intel‘s (INTC) “x86″ architecture chips, something that China’s Lenovo (0992HK) appeared to reinforce with public comments overnight. Lenovo, you’ll recall, bought IBM’s PC business back in 2005.

While everyone is trimming estimates today, bulls have mostly stuck with their price targets on the stock, arguing the company is still “well-positioned” and that the most valuable parts of its server business will return to health:

Ed Maguire, CLSA Asia-Pacific Markets: Reiterates an Outperform rating on the shares, and a $225 price target. Maguire cuts his estimate for this year to $104 billion in revenue and $16.77 per share from a prior $107.2 billion and $16.82. Hardware the main problem child; taking it out to the shed?
There are several moving parts in hardware, with product lines in transition or
underperforming. Mainframe grew 8% but was a big part of slipped deals;
x86 declined 3% while Power Systems declined 31%. CRN reported IBM is in
talks to sell the x86 business to Lenovo (we estimate roughly a $4.8bn
business), while the company anticipates a rebound from new low-priced
Power Linux systems. We suspect accelerating adoption of cloud computing is
at the very least creating some delays as customers assess options [...] we
wouldn’t be surprised if IBM divested hardware lines. Lapses in execution
accelerate 2Q workforce rebalancing, but the strong pipeline and improving margin profile keep us comfortable with 2013 EPS guidance.”

Shaw Wu, Sterne Agee: Reiterates a Buy rating and a $230 price target, while cutting his 2013 estimate to $103.6 billion in revenue and $16.75 per share in profit from a prior $106.1 billion and $16.85 per share. “However, we are not overly concerned as issues appear shortterm in nature and results are decent in light of bigger shortfalls at ORCL INFY and FFIV. IBM’s remains our top pick as we believe it is well-positioned with the industry’s most resilient business model and will benefit from a high-end server refresh cycle.

Mark Moskowitz, J.P. Morgan: Reiterates a Neutral rating and cuts his price target to $196 from $198. He cut his 2013 view to $103.58 billion in revenue and $16.46 per share in profit from a prior $105.3 billion and $16.61 per share. “The signs of renewed activity in IBM’s services backlog and signings are encouraging, but we need to see a string of quarters exhibiting improvements before having confidence to narrow the gap in our C2013 EPS estimate versus IBM’s outlook. Meanwhile, we are concerned that the software and mainframe disappointments are more than IBMspecific. Both platforms relate to big-ticket items, and the customers are usually deep pocketed. As a result, we think that the recent challenges could indicate that broader
IT spending conditions have yet to begin a rebound in earnest, which is why we
prefer to have more cautious operating estimates. We appreciate that IBM is moving swiftly to cut costs, but we think that this initiative speaks to the revenue headwinds being more than just IBM having some execution issues. IBM expects software and mainframe to bounce back in 2Q, but its POWER and System X servers, as well as storage, are expected to remain weak.”

Maynard Um, Wells Fargo: Reiterates a Market Weight rating and a $200 to $215 “valuation range,” while cutting his estimate for this year to $$104.92 billion and $15.59 per share from a prior $106.66 billion and $15.60 per share. “While pruning from low-margin services business, workforce rebalancing and a lower tax rate occurred largely as we anticipated, we underestimated the pressures on rev, which more than offset the improved margins [...] Management indicated high confidence that deals that slipped would close and drive strength in Q2. Despite this, management indicated that it will now take the bulk of its workforce rebalancing for the year in Q2, which, to us, possibly signals some uncertainty ahead [...] Hardware sales were weak
across the board with yr/yr declines in all product categories except System z,
which increased 7% yr/yr, but was below expectations (mgmt. noted $100-$150 rev impact from System z alone due to push-outs). System p was down 32% due to product transition, System x was down 9% likely macro related and Storage was down 13% yr/yr.

During conference call, I heard that business in Japan was doing very well but the yen hurt earnings (which tells me that I do not want to own Japanese companies in US dollars) and business in Latin America is growing, mentioning Brazil and Mexico.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.